Councilors were wrong to annex only part of an island of land surrounded by the city, ruling says

June 16, 2006

By David R. Anderson
The Oregonian

The Oregon Court of Appeals has handed the city of Beaverton -- and by extension all Oregon cities -- another defeat in the effort to annex high-value islands of land.

The court ruled Beaverton leaders were wrong to only annex parts of a large area surrounded by city borders instead of taking in the whole island.

In February 2005, city leaders forcibly annexed about 46 acres of unincorporated Washington County land owned by Wells Real Estate Funds adjacent to Nike's headquarters. But they left Nike's land as an unincorporated island outside Beaverton. Because the Nike land borders Wells, the annexed property cannot be considered "surrounded" under state law.

The irony, said City Attorney Alan Rappleyea, is that if the city had forcibly annexed Nike, the annexations would have been successful. He criticized the ruling as a narrow technical reading of state law.

The case could have implications for every city in Oregon that uses forced island annexations, said Thomas Sponsler, a lawyer representing the League of Oregon Cities.

Although the situation in Beaverton is relatively rare, other growing cities -- Damascus, Happy Valley, Bend and Medford -- could face similar dilemmas, Sponsler said.

The decision also could affect Beaverton's plans to annex large residential areas such as Cedar Hills, which the city surrounds. Other areas, such as Aloha and Cedar Mill, are not surrounded by the city and would require a different type of annexation.

The appellate court news was not all bad for Beaverton. Justices ruled in favor of the city in two other island annexation cases.

"For cities in general, there were good things about the decision," Sponsler said.

In one instance, the court determined that Bold LLC, the owners of the Cornell West office building at Northwest Bethany Boulevard and Cornell Road, couldn't challenge years-old street annexations that made the building and its land an island.

In another case, the court ruled that Leupold & Stevens, a sports optics manufacturer on Northwest Greenbrier Parkway, couldn't argue that an annexation exemption approved by the Legislature in 1987 for Tektronix applied to it.

The court rulings are the latest fallout from a vote by the Beaverton City Council in fall 2004 to forcibly annex some areas the city surrounded, particularly those that would generate significant property taxes.

Nike's headquarters and the adjacent lands qualified as an island. But Nike's land was not among the properties targeted by city leaders. Still, the athletic apparel maker has been at the forefront of property owners fighting the city's policy.

The 2005 Legislature banned the city from forced island annexations for two years and exempted Nike, Columbia Sportswear, Tektronix and Electro Scientific Industries from forced annexation into Beaverton for at least 30 years.

The city's annexation policy has also resulted in a protracted lawsuit by Nike over public records in which the city has been repeatedly criticized by the judge for failing to follow her orders.

Several property owners appealed their annexations. Wells Real Estate Funds, which owns about 46 acres of industrial and office land west of the Nike campus, has been the only one to win.

The appeals court struggled to interpret the intent of the law that allows forced island annexations. It does not spell out what it means for property to be "surrounded" by city land. However, the court said no one would consider the city of Honolulu to be "surrounded" by the Pacific Ocean even though part of it borders the ocean and the larger island, Oahu, is surrounded by the ocean.

Jack Orchard, a lawyer representing Wells, said the city created an illogical pattern when it skipped over Nike and later withdrew some of Wells' land from annexation because Nike was leasing it.

"It's always been an odd fit," Orchard said.

Wells' victory means that it might get back the additional property taxes the company paid last fall as a result of being annexed. The city's tax rate last year was $4.01 for each $1,000 of a property's assessed value. In Wells' case, that totals about $81,000.

The court's ruling reverses an earlier decision by the Oregon Land Use Board of Appeals.

Rappleyea criticized the decision as "somewhat weak" because of the lack of evidence of what legislators intended when they revised the island annexation law in 1985.

"It seemed to make common sense that you didn't have to annex the entire thing," Rappleyea said. "I was somewhat surprised by this outcome."

Rappleyea said the City Council will likely decide next week whether to appeal the ruling to the Oregon Supreme Court.